Iron giants go separate lithium ways

If you look at the latest operational report out this week from global mining major Rio Tinto, it lists its Jadar lithium and borates project in Serbia as being one of its slate of early-stage projects. Indeed, the coverage of the report by the Australian Financial Review concluded with the remark that, of all Rio’s new project line-up, Jadar was far and away the most exciting.

Two days later, The Australian newspaper reports that a near neighbour of Rio and also mining iron ore in the Pilbara region of Western Australia, Fortescue Metals Group (FMG), has decided to pass on lithium. The point the company makes is that FMG wants to spend its money reducing costs in its production and shipping of iron ore, not on breaking into new sectors.

This shows the difference between the two companies, and their separate approaches to lithium does not reflect on lithium itself, but is explained by the size and purpose of each company. Rio is by far the larger, and in addition to iron ore it is involved in titanium, coal (both coking and thermal), copper and aluminium. In other words, it is a diversified operation and equipped to handle several sectors at once. Fortescue is an iron ore company, with that primary focus.

So, as The Australian reports Thursday, “rather than chase up the lithium potential of the iron ore group’s leases in the Pilbara, Fortescue has decided to parcel up the lithium exploration rights and sell them off“.

The Fortescue ground is in the same area as a project who owner claims to have one of the world’s largest hard rock sources of lithium, 120km south of the huge Port Hedland iron ore export operation. But the remarks made by FMG CEO Nev Power suggest that his company is alert to what would be the cost of testing the lithium-bearing pegmatities that have clearly been identified on its ground.

He may also be considering the fact that there are now so many lithium explorers and lithium projects that FMG would be coming later to the game.

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Rio’s position is quite different.

Reports have suggested that Jadar could be a large enough deposit to supply up to 10% (some analysts have speculated as much as 20%) of the current global lithium market. Full details of the project were contained in my May 18 report on InvestorIntel.

Subsequent to that InvestorIntel report, Rio Tinto has committed more funds to Jadar, the additional $20 million making the investment in the project so far of $70 million. At a mining conference in Nancy, France, last month, Rio’s CEO of the diamonds and minerals division, Alan Davies, had this to say:

“Just on a decade ago we discovered the unique Jadar lithium-borate deposit in Serbia, some 140 kilometres from Belgrade. I visited Jadar a few months ago and we are excited about its potential. We’re progressing well through the pre-feasibility study and refining our test work and trials at our in- house Californian and Australian research facilities. Subject to approvals and investment decision it could be in production early next decade (in the 2020s).

Jadar is among the largest lithium deposits in the world and could supply more than 10 per cent of world lithium demand.

As important as project engineering and process work is, market development and growth will be key. World car and commercial vehicle production is currently about 90 million vehicles a year. Toyota, the world most successful automaker of EVs, has sold eight million hybrids over the past two decades – including the Prius which next year celebrates 20 years on the market. New carmaker Tesla is looking to increase its production tenfold, from 50,000 EVs a year to half a million vehicles before this decade is out.

And industry analysts are suggesting EVs could capture 10 per cent of new vehicle production by 2025. Such trends point to potentially rapid growth. Lithium batteries have been around for 20-30 years but new momentum is emerging.”

It doesn’t look as if Rio is losing its appetite for lithium. Not the sort of competitor that the junior lithium players will welcome.